Exit The Petro-Dollar

Glenn Diesen provides his understanding of this development, linking to The Business Standard, and others are picking up on it. The implications really do justify the characterization of this change as a “tectonic shift.”

Glenn Diesen @Glenn_Diesen

Tectonic shift in the financial world as Saudi Arabia will not renew its 50-year petro-dollar deal with the US - The petro-dollar system became the foundation for preserving the US dollar as the world's reserve currency after Nixon abandoned the gold standard - The US can "tax" the entire world by printing new money for itself and thus devalue the dollars the rest of the world holds. This is a great concern when the US is 35 trillion dollars in debt. - The US can weaponize the dollar through sanctions. This is becoming a greater problem as the US seeks to reassert its dominance, which involves using the dollar to weaken rivals and obtain geoeconomic obedience from allies. Washington's decision to seize the reserves of the Russian central bank may have been the final straw that eliminated trust in the weaponized US dollar. https://tbsnews.net/world/global-economy/saudi-arabias-petro-dollar-exit-global-finance-paradigm-shift-875321…

12:56 AM · Jun 13, 2024

That doesn’t mean that the full implications will become apparent overnight. It’s safe to assume that dollars will continue to be used in oil deals for some time to come, simply because major oil importing countries (think China) still have large reserves of dollars. In that regard, there’s been quite a bit of controversey online as to the exact terms of the petro-dollar deal between America and Saudi Arabia. The NYT article announcing the deal doesn’t actually refer to this part of the deal. My guess is that the “contract” that is referred to was set to last for a term of years, with the possibility of renewing the contract on specified terms. Saudi Arabia has simply decided against renewing the contract.. The Business Standard summarizes what’s going on in simple terms:

Significant financial upheaval is potentially ahead of the financial world as Saudi Arabia has decided not to renew its 80-year petro-dollar deal with the United States. The deal, which expired on Sunday 9 June, was a cornerstone of the United States global economic dominance.

Originally signed on 8 June 1974, the deal established two joint commissions, one based on economic cooperation and the other on Saudi Arabia's military needs. At the time, it was said that it heralded an era of close cooperation between the two countries, says Katja Hamilton of BizCommunity.

American officials at the time expressed optimism that the deal would motivate Saudi Arabia to ramp up its oil production. They also envisioned it as a blueprint for fostering economic collaboration between Washington and other Arab countries.

The crucial decision to not renew the contract enables Saudi Arabia to sell oil and other goods in multiple currencies, including the Chinese RMB, Euros, Yen, and Yuan, instead of exclusively in US dollars. Additionally, the potential use of digital currencies like Bitcoin may also be considered.

This latest development signifies a major shift away from the petrodollar system established in 1972, when the US decoupled its currency from gold, and is anticipated to hasten the global shift away from the US dollar.

Megatron gives his spin, but highlights a key misunderstanding:

MBS announced that Saudi Arabia will not renew the 75-year-old agreement that helped preserve the US dollar's dominance in international trade.

The move will allow Riyadh to sell oil in multiple currencies including the yuan, euros, yen, etc., instead of exclusively in dollars.

It could signal an end to Washington's global financial dominance and raises the question of what the US is famous for exporting that the world is buying.

Boeing jets? Woops!

But considering that the Saudi leader Mohammed Bin Salman is loyal and obedient to the USA, there are great chances that the agreement will be extended but partially, because China will certainly not pay them in dollars in the near future.

Actually, I suspect that China will probably be happy to continue paying for Middle Easterrn oil in dollars, simply in order to use up its dollar reserves, thus weaning China from the linkage of its economy to the US dollar. Further, if MBS has announced the end of the contract I very much doubt that he’ll do an about face. There was a reason why KSA joined BRICS, and it wasn’t about remaining chained to a constantly inflating dollar.

Diesen is right as to the implications. The ability of the US to use sanctions—which can only be enforced by a US dollar that is the world reserve currency—to punish rivals and enforce obedience from vassal states is coming to an end. But that end probably won’t occur overnight. The question for now is whether the effects will begin to be apparent sooner rather than later.

King Dollar has been the foundation for the Anglo-Zionist empire, allowing the US to print dollars to police its global empire while inflating to keep “stuff” from China and elsewhere cheap. That system is coming to an end. America has a lot of fundamentals in its favor in terms of resources and geography, but some painful adjustments will be in our future.

Near term, America’s ability to keep the Arab countries in line will be challenged. Blinken has been flying around the Middle East, obviously trying to do just that—keep the Sunni countries in our camp. My guess is that those countries are listening to multiple poles in our new multi-polar world, to see where their interests lie. One clue to this is that the US, via SecDef Austin, has once again told Israel that America doesn’t want to see an escalation against Hezbollah. The US is not on board, yet, with Israel’s Holy War, despite being fully aware of what John Mearsheimer has been saying—most recently in a video that has gone viral: Why Israel is in deep trouble: John Mearsheimer with Tom Switzer. All this interacts with our wars against Russia and China—how many balls can our Deep State jugglers keep in the air for how long?

Megatron @Megatron_ron

NEW: Commander of Israel's 769th 'Hiram' Brigade in Kiryat Shmona: 'We have lost control of the North, we have completely lost the initiative. Hezbollah is the one who determines the battle. They strike where they want to, and when they want to. Netanyahu must act NOW.' @Middle_East_Spectator

7:22 AM · Jun 13, 2024

Very much related. While writing I’ve been listening to Gold Standard advocate Judy Shelton in an interview that aired just yesterday: America is in “A Bad Place”; Gold Can Restore Its Prosperity Says Trump Fed Nominee. I just heard her say this:

Kwasi Kwarteng [wrote] an oped that was published by the New York Times--it's worth looking up--suggesting that the world needed a new international monetary system. And he said if China went on a gold standard they would be where the United States was in 1944. They would be the one. Now, do I think that's part of China's interest? I do. I also think that we see the BRICS countries trying to set up an alternative to the US dollar now.

Being the dominant reserve currency is not something you want to lose. That is our greatest instrument of soft power around the world, and I heard that from Robert Gates, the former Defense secretary. That is very powerful for us. We want to retain that--and it looks like we can--but we sure don't want to jeopardize it. And we now see China and Russia and other countries--I think Saudi Arabia is in the mix. We need to watch them.

…

China did a very clever thing. They set up in their free trade zones gold Futures markets in the last few years, and that enables Russia and other oil supplying countries to sell gold to China and immediately get paid in Yuan that's convertible into gold Futures instruments. So that's a way for China to carry out trade--especially energy trade--and at the same time elevate that platform as one of the world's strongest platforms for gold future. Now, it's not the same as a gold standard. China is not saying, 'Here, we're linking our Yuan to gold at any fixed rate,' but they are making it very easy and almost instantaneous for any country that wants to do business with China to have the financial arrangements based on an instrument denominated in Gold Futures contracts which might be acceptable to these other countries.

A few observations:

MBS’s announcement, which has been expected for weeks, will make it virtually impossible for the US to retain its stranglehold on world trade settlements.

“Soft power” is very much in the eyes of the beholder. Sanctions warfare can be every bit as devastating to vulnerable countries as a bombing campaign. That’s a reality that’s only lost on Americans who pay no attention to what their Imperial Deep State is up to around the world.

Shelton doesn’t explain how the US can go about retaining King Dollar as the world reserve currency. She propounds the concept that a sound currency can only rest upon sound finances. Exactly when does she expect the US to get its finances on a sound basis? While Saudi Arabia exits from the petro-dollar deal?

China did a very clever thing? Uh, yeah. They’ve made a habit of that. How about us?

Interesting times.